British Government to Nationalize Top Banks as Japanese Weigh Bid for Morgan Stanley; London Stock Market Might Be Closed on Monday
October 12th, 2008Via: Telegraph:
THE government will launch the biggest rescue of Britain’s high-street banks tomorrow when the UK’s four biggest institutions ask for a £35 billion financial lifeline.
The unprecedented move will make the government the biggest shareholder in at least two banks.
Royal Bank of Scotland (RBS), which has seen its market value fall to below £12 billion, is to ask ministers to underwrite a £15 billion cash call.
Halifax Bank of Scotland (HBOS), Britain’s biggest provider of mortgages, is seeking up to £10 billion.
Lloyds TSB, which is in the process of acquiring HBOS in a rescue merger, wants £7 billion, while Barclays needs £3 billion.
The scale of the fundraising could lead to trading at the London stock market being suspended. This would give time for the market to digest the impact of the moves.
One consequence of the deal might be that Lloyds could renegotiate the terms of the HBOS takeover, although both sides are still keen for the merger to take place.
An economist who declined to be named said: “This is the biggest risk of the UK’s balance sheet ever undertaken. No-one knows the extent of the toxic assets these banks are exposed to.”
Separately, the future of Morgan Stanley, the American investment bank, is also in doubt today following a sharp sell-off of shares and warnings of a possible credit downgrade from Moody’s the ratings agency.
Mitsubishi UFJ Financial Group is reviewing the terms of a $9 billion (£5.3 billion) capital injection into the bank and may launch a takeover. HSBC, Citigroup, JP Morgan and Deutsche Bank are also assessing the situation. Morgan Stanley’s market value has slumped to $13 billion.
The British bank rescue could leave the government owning 70% of HBOS and 50% of RBS. As a result it could take board seats at both companies and exercise control over future dividend payments.
Crisis talks were taking place this weekend between the Treasury, the Financial Services Authority, the Bank of England and heads of the four retail banks. As part of the fundraising it is likely that banks will also have to own up to future losses from their exposure to sub-prime mortgages and other financial instruments.
Mervyn King, the governor of the Bank of England, has told the banks to ask for more than they need. This is to make sure that their capital position is strengthened sufficiently to absorb shocks and to withstand a long recession. Further capital is also available and the Treasury has increased the total amount to £75 billion.
